Problem Set 4

Question 1

How would you solve for the missing fields?

Answer 1

Question 2

Analyze the drivers of the change in ROCE
What do you need to remember about FLEV and SPREAD in this case?

Answer 2

Question 3

Under what conditions would a firm’s return on common equity (ROCE) be equal to its return on net operating assets (RNOA)?

Answer 3

➔ SPREAD = 0
➔ FLEV = 0

Question 4

Under what conditions would a firm’s return on net operating assets (RNOA) be equal to its return on operating assets (ROOA)?

Answer 4

➔ OLLEV = 0
➔ OLSPREAD = 0

Question 5

Low profit margins always imply low return on net operating assets. True or false?

Answer 5

False. A firm can have a low profit margin (PM) but compensate with a high asset turnover (ATO).

Question 6

Answer 6

120/6